What does it mean?
We normally charge a fixed hourly rate, negotiable for larger projects and long-term clients. We agree a flat rate with each client, rather than different rates for different types of work, keeping time-tracking and billing very simple.
This method allows the client great flexibility as they can change their requirements "on going" without having to re-specify and re-negotiate the job with us. This is akin to using in-house employees – the client simply uses us as their temporary R&D resource.
In this case, is the client who carries the risk should the project overrun; anyway, we work closely with the client to manage/reduce this risk. We typically break the project down into phases, and re-assess the project plan and estimates at the end of each phase. If additional costs arise, we are every open and pro-active with the client to find a solution suitable for him. Sometimes the client decides to pay more to achieve a specific outcome, other times we will suggest changes to the design requirements in order to limit costs.